Question

If a firm has a $1,500,000 debt limit before AT kd will change and if taxes are 40% and total equity in the capital structure is 40% and the rest is debt, calculate the debt breakpoint in the MCC schedule.

Answer 1

$2,500,000

Step-by-step explanation:

Break Point = Level of debt / Weight of debt

(100%-40%)

=60%

Hence:

= 1,500,000 / 60%

= $2,500,000

Therefore the debt breakpoint in the MCC schedule will be $2,500,000